We've now heard third-quarter earnings results from all of the major U.S. banks. While Bank of America(NYSE:BAC) isn't earning quite as much as it was a year ago, the bank actually turned in a pretty strong quarter. With shares trading at a steep discount to book value, is now a smart time for long-term investors to take a closer look?
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Jason Moser: Let's go ahead and wrap it up. What I think is probably your favorite bank out there today as an investment, given what we've talked about on the show here before: Bank of America. Again, this has been really an impressive story to watch from a number of different angles. But I think that CEO Brian Moynihan has really done a tremendous job with the business, particularly given the situation that he stepped into. He did turn the conversation around here, and shareholders are certainly reaping the benefits of that today.
What the quote that stood out to me on the call, because this really tells you what's on his mind, where he's thinking. He said, and I quote, "The operating environment continues to require more operational excellence than ever before." Really, he feels like they're focusing not only on maintaining the culture of the business but making sure that everything is in order and they're being as efficient and as effective as possible with what they have.
Matt Frankel: They've really done a fantastic job over the past few years, especially of just really prioritizing business efficiency, responsible lending. It's really been reflected in their profitability. I like Bank of America.
You mentioned that they're probably my favorite, and you're right. It's because they are probably the best combination of profitability and safety and growth in the banking space at that kind of evaluation. They trade for a significantly lower price-to-book multiple than, say, a JPMorgan Chase (NYSE:JPM). I would put their operations not certainly on equal footing, but pretty close at this point.
Bank of America is also a much more even mix of investment banking and consumer banking, which I really like, because in times like this, it really helps boost their revenue. Then in times when it's a really good consumer environment, they get the benefit from that as well.
Just running through some of the numbers that really stood out to me, well, one, their charge-off ratio declined from the second quarter to the third, which is definitely an encouraging sign. Like JPMorgan Chase, they released some of their reserves instead of building their reserves, which is very encouraging. That means that the impact of COVID isn't going to be quite what they thought it was going to be. Revenue overall was down to 11%, much better than Wells Fargo (NYSE:WFC), but on the same time, consumer loans were up 5% year over year, which is pretty impressive given the environment. Consumer deposits, if you've been following that at all, people have been socking away money like crazy, which generally happens around a recession. So the consumer deposits were up 21% year over year.
Jason Moser: Wow.
Matt Frankel: They had their second-best investment banking quarter ever. This is where the investment banking offset comes in. Investment banking fee income was up 15% year over year. It's just a really strong quarter on the investment side of the business, and they earned more than enough to cover their dividend. They beat expectations.
But I wouldn't judge any of these banks on just the bottom-line number right now. You really have to look at what's going on. Like I said, there are loan-loss trends, what's going on in the investment banking business, whether their interest income is holding up OK or not, and growth. Growing your loan portfolio, that's long-tailed income. Deposit portfolio gives you more capital to lend. And even before the pandemic, out of the big four, Bank of America was putting up the best growth numbers consistently. You're growing the loan portfolio by 4% when everyone else was at 1% or 2%.
They'd been slowly outperforming for a little while, so I like Bank of America for that reason. I think they are going to continue to improve their efficiency. This might even accelerate more enhanced plans to do that, and I just see a very bright future for them. They're not quite at the JPMorgan Chase level, but I see them getting to equal footing before too long.
